Price to prepare for any rush to exit It gets OK to secure backup lines of cash

September 27, 1995|By BILL ATKINSON | BILL ATKINSON,SUN STAFF

T. Rowe Price Associates Inc. has received approval from the Securities and Exchange Commission to secure backup lines of cash that could be used to cushion withdrawals by investors.

Mutual fund companies reportedly have been seeking such backup money because they are concerned that investors who have reaped big gains in the stock market may cash out and redeem their shares at one time.

Henry Hopkins, T. Rowe Price's chief legal counsel, said the company sought approval not because it fears a rush of redemptions but for "prudent" planning. "At some point we know we may be under redemption pressure," he said. "We want to have every option available to us to manage redemption pressure."

The agency's approval will allow T. Rowe Price to secure a "committed" line of credit from a bank to cover emergency outflows for its 65 mutual funds, in which about $42.5 billion is managed. The company has yet to do so, Mr. Hopkins said. T. Rowe Price needed SEC approval because it could have violated the law if all of its funds shared the cost of securing a committed line of credit from a bank, Mr. Hopkins said. The company received the agency's blessing in July.

"I think it is a very conservative strategy that makes a lot of sense," said Guy Moszkowski, a principal with Sanford C. Bernstein & Co. "They are concerned that investors might all decide at the same time they want to sell."

The company declined to release aggregate numbers for its mutual funds, but a spokeswoman said cash flow among the T. Rowe Price funds are down 15 percent for the first eight months of the year, compared with the same period in 1994.

The reduction in cash flow -- which includes money coming into funds and money being redeemed, or reinvested in other products -- was down largely because of a slowdown in international investing, she said.

Mr. Hopkins noted that in his 24 years with the firm, he doesn't recall it ever needing to tap backup funds.